"We need to transform the program from being a passive bill-payer to an active purchaser of healthcare by giving quality and cost information to providers and beneficiaries to choose the most effective and efficient care," said Weems. "We are also testing new forms of provider payments to reward providers who deliver the highest value to our beneficiaries. We can do this by enhancing competitive bidding strategies, paying more to higher quality providers than lower quality, and demonstrations that use care coordination, bundling and electronic health records."

In comparison to the status of the Part A and Part B programs, expenditures for Part D have consistently been lower than projected. The 2007 report continues to project lower spending, primarily due to a significant reduction in bids. However, costs over time are still expected to increase at an average annual rate of about 11.1 percent through 2017, down from the 12.6 percent estimated last year. Part D benefit coverage is provided through private drug insurance plans that participate in Medicare and receive Federal subsidies that lower beneficiary premiums and reduce plan financial risks. Compared to last year's Trustee report estimates, premiums for basic coverage in 2008 are lower than anticipated in last year's report. Rebates from manufacturers in 2008 are expected to be higher than last year's estimates.


As required by the Medicare Modernization Act (MMA), the Trustees compare overall projected Medicare expenditures with the program's "dedicated revenues"-principally HI payroll taxes, certain income taxes on Social Security benefits, beneficiary premiums, and special state payments to Part D. The portion of program costs financed by general revenues (rather than by "dedicated revenues") is projected to exceed 45 percent in 2014. Because this result falls within the first 7 years of the projection period (2008-2014), the Trustees have issued a determination of "excess general revenue Medicare funding" for the third consecutive year.

When this determination is made in two consecutive Trustees Reports, a "Medicare funding warning" is triggered. The funding warning indicates that the level of Federal general revenues required to finance Medicare is an important concern, but it does not signify that program benefits cannot be paid.

The Medicare funding warning was first triggered by the 2007 report and is triggered again with the 2008 report. The funding warning requires the President to propose legislation to respond to the issue within 15 days following the release of the next fiscal year's budget and the Congress is required to expeditiously consider the President's proposals. President Bush submitted legislation in February 2008 in response to the 2007 Medicare funding warning and Congress has taken no action. As a result of the new funding warning, the President must again submit to Congress proposed legislation to respond to the warning within 15 days of the release of the next fiscal year's budget.

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